ACCOUNTING 101

ACCOUNTING 101

BROUGHT TO YOU BY

The makers of AccountEdge

Written by:

Todd Salkovitz

Product Evangelist

This document was written with the best intentions of describing the daily accounting functions

that most small business owners grapple with. The accounting processes, terminology and

theory described here relates to our own experiences here in the USA, and may not translate

exactly to your own local, regional, or national customs, laws, or practices.

Our goal is present a basic overview, so any discrepancies for localization are purely accidental.

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Like all small business owners, you went into business with a dream: to sell your unique

product or services and make a good living for you, your family, your employees and your

partners. You also wanted to change the world so you made the decision to run your small

business using AccountEdge. Now reality has kicked in and you are faced with the challenge

of managing your operations and your nances, all on a Macintosh. In this special edition of

��Accounting 101�� we��ll explain the basics of accounting in easy to understand terms with real

life examples, showing you the impact on your nancial statements. We��ll also discuss working

with your CPA, no matter what platform they are using.

Let��s review what you��ve probably already done today. When you got to work you probably

checked the fax machine for any incoming orders. Next, you reviewed your email for any email

or web orders. You also check voice mail to see if any previous quotes have been accepted.

You also checked the mail, where you found a stack of vendor bills and a few customer

checks. Next, you reviewed your online bank balance and saw that the big deposit you were

waiting for nally arrived. Next, you wrote some checks and ordered more inventory. Feeling

kind of ush, you called the local Apple Store and placed an order for that new MacBook Air

you wanted, using your credit card. Since it��s Friday, you also had to run payroll, process

paychecks and make your direct deposits. You also went to the bank and made a 941 deposit.

When you got back to the o ce you had a stack of phone messages, including one from your

best supplier o ering a one-day sale and from your newest customer who wanted to exchange

some parts and place another order, he was also asking for credit terms, and he had a lead for

some new business you had discussed. Then your cell phone rings, another new client with a

huge order asking if you accept credit cards. Finally, you realize you better pay yourself, if

there is money left. Then you ask yourself: How��s cash ow? Who owes me money? Whom

do I owe money to? Is my business going to succeed? How do I keep it all together? How do I

know?

Does this sound like a typical day for you? As a small business entrepreneur, it probably does.

Most likely, you deal with all this stu and more before your rst cup of co ee. Admit it, you

probably struggle a little bit to keep it all together. No matter how you handle all these

transactions, the fact is, they are all accounting transactions: taking orders, buying stock,

selling parts, buying computers, making deposits, writing paychecks, remitting payroll taxes,

paying yourself, and more. In the average day, you probably do more accounting than you

ever thought possible. How you track that data, what reports you have access to and how

accurate and up to date they are play a large part in determining your nancial success.

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How you work with your bookkeeper (if that��s not you) and your CPA (you should have one you

love) probably determine how successful your business is.

How you keep it all running smoothly probably falls on your shoulders. Knowing your local,

state and federal tax regulations, deadlines and responsibilities probably keeps you up at night.

Understanding what it all means and using that information to your advantage is what this

document is all about.

When you started your small business you probably did as most small business entrepreneurs

do and tried to use software that came with your Mac or PC, or downloaded for free, to run

your business. Maybe you tried some free service or Excel. If you are a creative professional,

you may have used a system that looks like this: Invoices were done using inDesign (because

you could put your logo on them in 1200dpi��), checkbook register in Excel, and everything

else done by hand. Your rst experience with ��bookkeeping�� was probably to use a

computerized checkbook system since it worked so well for your home nances. Not a bad

place to start. But, as your business grew ��beyond the checkbook,�� your record keeping,

reporting, and compliance requirements also grew.

Now you have customers to track, vendors to pay, sales to record, sales taxes and payroll

taxes to track and a full set of accounts to maintain. You probably also have an accountant

who is preparing your state, federal and maybe even your payroll taxes for you. Maybe you

have inventory, or bill your employees time, or hire lots of subcontractors �C all of these things

require integrated record keeping, they require�� a-c-c-o-u-n-t-i-n-g!

By now you nd yourself spending more time keeping your books than keeping your

customers happy. You understand the importance of having accurate books, but you have a lot

of demands on your time, so accounting and record keeping never seem to get the attention

they require. You fondly skipped all those high school and college accounting courses, guring

you weren��t ��going to be an accountant anyway.�� Well, surprise! Not only are you an

accountant, you are a lawyer, a shipping clerk, a customer service rep, a lawyer and more �C all

in the pursuit of your dream.

So what can you do to make this work? The rst step is to understand the basics and how

they all t together. At the end of this booklet is a glossary of all the relevant accounting terms

that will help you understand the science of accounting. Understanding the terminology will

help you understand the concepts and their relevance to you, and more importantly, they will

help you analyze and run your small business. All the information you need to run a successful

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small business is contained in your accounting system �C recording your transactions, verifying

their accuracy, and interpreting your nancial statements �C that��s your goal!

Before we go any further, keep this in mind: you don��t have to be an accountant to run

AccountEdge. All too often small business owners use this line to shun doing any type of

record keeping (and therefore, business management), to their own detriment. The reality is,

I��m not a mechanic, but I can drive my car. I��m also not a plumber, but I can x a running toilet

and I��m certainly not a doctor, but I can put a band-aid on my kids�� knee, even take out a

splinter. All it takes is the will to succeed and the desire to run a successful operation. Will it be

easy? I wish I could say yes. Will it be frustrating? I wish I could say no. Will it be invaluable to

your business and your long-term success? You bet! Will you ever need outside help? You

might, so don��t be afraid to call in a professional �C either your accountant or one of our

AccountEdge Certi ed Consultants (local, tech-savvy, business management experts) in your

community, nd them online at .

Our goal is to help you understand the basic concepts of accounting and how they relate to

your business. One of the great things about AccountEdge is that it does all the debits and

credits for you empowering you to manage your business. Smarter.

Your Daily Life

First, let's start with an overview of how accounting ts into your daily life. Quite simply, every

transaction you make results in an entry into your ��books.�� Whether it is a receipt of cash, a

sale, a check you��ve written or a deposit from a customer �C every transaction gets recorded in

your books at some point. The timeliness and accuracy of when and how you record your

transaction directly a ects your ability to manage your business and your cash ow because

accurate and timely data entry equal accurate and timely nancial statements. Want to know

how you are doing year to date? As long as all your transactions are entered correctly, a

simple click of the mouse will produce the information you need.

If you think your business is ��checkbook-centric,�� remember that there are plenty of

transactions that do not involve cash that should be recorded in your books. Anything that

a ects the things you own (assets) like repairs or purchases, all require a transaction. Anything

that a ects what you owe (liabilities) like sales taxes or payroll taxes requires a transaction to

be recorded. Anything that a ects sales (revenue), like an invoice or a product return needs to

be recorded. And, as you no doubt already know, all your vendor bills (expenses) are recorded

when received and again when they are paid. Just because cash is not exchanged does not

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